by Lori Curtis - Transparency, Trends/Challenges -

MICROCAPITAL PAPER WRAP-UP: The State of the Microcredit Summit Campaign Report 2009, by Sam Daley-Harris

The State of the Microcredit Summit Campaign Report 2009 was written by Sam Daley-Harris and is a 70 page report that discusses the human face of global poverty, reviews microfinance breakthroughs in helping slum dwellers move out of the slums and highlights innovations that have brought renewable energy to poor communities. The report is a summary of the achievements and innovations of the Microcredit Summit Campaign for the year 2008 as wells as notable achievements in the microfinance community in general and consists of contributions from a variety of experts in the microfinance industry. The original report is available here.

What follows is a summary of the report.

INTRODUCTION

At the end of 2007, 3,552 microfinance institutions (MFIs) reported reaching over 154 million clients, 106.6 million of whom were among the poorest when they took their first loan. Loans to the 106.6 million poorest clients affect a total of 533 million people, including clients and family members. Additionally, as a part of the 2007 Microcredit Summit Campaign, MFIs were asked for the number of clients how have crossed the USD one a day threshold. Although it is too early to report these findings, the progress of these findings will be reported beginning in next year’s report.

RULE-BREAKERS LEAD THE WAY

The Microcredit Summit Campaign has continued to stress that microfinance is just one of the tools needed to end global poverty, and that the mere availability of financial services must be accompanied by other services, and go beyond the mantra of inclusive financial services. A transformation in how development and financial services is required. New rule-breakers have emerged to continue to break the rules of commercial banking, but also to break the rules of microfinance itself. Their innovations are leading to breakthroughs in other areas of development in their quest to find better ways to use microfinance to end poverty. The report highlights the achievements of Jamii Bora, and MFI based in Nairobi which provides loans to beggars, prostitutes, thieves and others normally excluded from microfinance, while the staff consists exclusively of clients and former clients.

MICROFINANCE AS A PLATFORM, NOT A PRODUCT

Grameen Foundation President and CEO, Alex Counts wrote an article entitled “Re-imagining Microfinance”, which was published in the Stanford Social Innovation Review in 2008 and called for microfinance to serve as a platform and not as a product. This platform is proposed to be used to deliver a host of products and services to the world’s poorest, most isolated people. He suggests that the most important assets of MFIs are not their loan portfolios but their high quality relationships with the world’s poor, which can be leveraged in order to develop and distribute financial and non-financial products and services. It also challenges MFIs to lower interest rates once service costs have been reduced, as well as adopting a business model based on conducting many marginally profitable transactions, rather than fewer highly profitable ones.

Dipal Chandra Barua, Founding Managing Director of Grameen Shakti is an example of using microfinance as a platform as it sells, finances and services renewable energy systems throughout Bangladesh, and is reducing carbon emissions by 90,000 tons per year through solar home systems to rural people. It plans to create 100 thousand Green Energy Entrepreneurs by 2015.

INTEGRATING MICROFINANCE AND HEALTH EDUCATION-A ROAD TO THE FUTURE

MSC has also beeng working with Freedom from Hunger to promote the integration of microfinance and health education, launching a 15-month microfinance and health integration pilot project in Southern India with support from Johnson & Johnson. The pilot project worked with four institutions to train local trainers who trained one hundred of these organizations’ field workers, who then delivered health lessons to over 15 thousand clients on HIV/AIDS prevention and care, managing childhood diseases and women’s health.

COMMERCIALIZATION: THE OPPORTUNITY AND THE CHALLENGE

While the debate on the commercialization of microfinance is often reduced to whether or not MFIs should be profitable, MSC argues that no serious actor in this field proposes unsustainable MFIs and that the debate is actually centered around the issue of profit-maximization at the MFI level versus a more holistic measurement of success which includes MFI profitability as well as improvements in the socio-economic conditions of clients. Dr. Steven Funk, of Unitus, writes that commercial investment in microfinance must be seen as an integral part of the equation in order to reach all of the people who need access to microcredit loans. He suggests that resources from private philanthropy and the public sector are not capable of increasing on the scale required to reach all of the world’s poor, and that those involved in microfinance must be open to the “critique of commercial capital’s investment motives.”

THE NEED FOR PRICING TRANSPARENCY IN MICROFINANCE

Chuck Waterfield, founder of Microfinance Transparency, writes that the true price of microfinance loan products has never been accurately measured nor reported. Microfinance loans, contrary to commercial loans, can quote an interest rate of three percent a month which results in an APR between 36 percent and 96 percent, depending on how this rate is applied. The same principles of transparent pricing applied within the commercial finance industry have not been applied to the microfinance industry. There has been intensive dialogue on this issue, and initiatives have been created in order to address non-transparent pricing, including the “Campaign for Client Protection” which began in April 2008, and another is MicroFinance Transparency.

THE WORLD BANK’S OPPORTUNITY TO LEAD IN EMPOWERING THE VERY POOR WITH MICROFINANCE

In response to a lack of investment in microfinance in Africa and other extremely poor regions globally, 1,400 parliamentarians around the world wrote letters to the World Bank asking it to ensure that the growing commercialization of microfinance does not result in the poor being left behind. These letters have emphasized three actions: creating a USD 200 million annual grant facility to build MFIs’ capacity to reach clients living on less than USD one per day; establishing three regionally based “centers of excellence” that demonstrate success in reaching the very poor; and creating a regional or sub-regional apex fund in Africa to encourage the expansion of successful pro-poor MFIs in the region.

MEASURING PROGRESS ON THE SUMMIT’S GOAL, CLIENT MOVEMENT ABOVE THE US$1 A DAY THRESHOLD

Phase II of the MSC was launched in 2006 with two new goals for 2015: Working to ensure that 175 million of the world’s poorest families are receiving credit for self-employment and other financial and business services; and working to ensure that 100 million of the world’s poorest families move from below USD one a day to above USD one a day, adjusted for purchasing power parity and using a starting point of 1990. These new goals were established to contribute to achieving the Millennium Development Goal on cutting absolute poverty in half by 2015.

By Lori Curtis, Research Assistant

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